Trustee Swings and Misses with Mets Owners

Things are looking up a bit in Flushing these days both on and off the diamond.

With the return of Jason Bay to the lineup and some improved pitching, the Mets are playing better baseball and they are over .500 with Bay in the lineup.

Off the field, the Mets still have the support of the commissioner's office and an announcement is expected soon regarding a new minority owner who will add an infusion of funds that will help the franchise through these difficult times.

Furthermore, there seems to be a growing sense that the lawsuit filed by Irving Picard, the trustee in the Bernard Madoff case, against the Mets owners for up to $1 billion is largely without merit.

"I think Picard has abused his power," Congressman Peter King (R-N.Y.) said recently during an
interview on WFAN radio in New York.

King also told the New York Daily News that Picard's fees for the case are excessive as they already exceed $288 million and are expected to reach at least $1 billion before the matter is completed.

"I am concerned that the trustee may be driven by profit rather than the goal of ensuring that the defrauded investors are made whole," King said.

In his suit against the Mets owners (Fred Wilpon and Saul B. Katz), he is attempting to recover $700 million in "punitive" damages because he claims the owners knew and were complicit in, or should have known, that Madoff was involved in a massive fraud.

The evidence set forth so far makes it seem that Picard is reaching. As one person familiar with the case who did not wish to be named while commenting on pending litigation said, Picard was "abusive" and was really "acting more like a plaintiff's attorney than a trustee."

The burden of proof lies squarely on Picard in this matter. He has to prove that Wilpon and Katz were either in on the Ponzi scheme with Madoff (for which there is no evidence whatsoever) or reasonably should have known but ignored obvious facts available to them that Madoff was not on the level.

Thus far, the trustee has requested and received more than 700,000 pages of emails and documents dating back a total of 25 years from the Mets owners, and yet there is no smoking gun implicating the Wilpons or the Katzes.

A good portion of the complaint alleges that Katz and his son became "experts" in the brokerage business. However, Wilpon and Katz made their money in real estate through their primary business, Sterling Equities, which they built from the ground up over the course of more than 40 years. The fact that they were successful in real estate and have significant money to invest in no way makes them experts in the brokerage business.

Picard also alleges that the Mets owners were given repeated dire warnings about Madoff by a person close to them and therefore were on notice about potential problems concerning Madoff. However, a review of a lengthy deposition shows that these "warnings" merely consisted of concerns about the fact that Madoff worked alone and if something happened to him, there would be uncertainty regarding their investments. The fact that Madoff did not reveal his investment strategy was also a concern, but the same person also repeatedly indicated how respected and even revered Madoff was on Wall Street.

Throughout the 320-plus page deposition, lawyers for the trustee try to get the witness to say damaging things, but in the end, the testimony again fails to provide any documentation of wrongdoing by either Wilpon or Katz.

The complaint also alleges that the Mets owners failed to do "due diligence" on Madoff over the course of their 25-year relationship. However, in the early years, the Wilpons and Katzes took several steps to check on Madoff's legitimacy, which they documented in papers submitted to the court. Furthermore, the SEC investigated Madoff numerous times during the 25 years the Mets owners made investments with Madoff and each time declared him legitimate. It hardly seems fair to hold investors, in this case the Wilpons and the Katzes, to a higher standard than the SEC, whose job is to investigate securities fraud.

As for the allegation that the Wilpons and Katzes should have known about the Ponzi scheme Madoff was running, again, no smoking gun has been produced. In fact, the Mets owners actually invested additional funds with Madoff on the day he was arrested -- just hours after he was taken into custody but before his fraud was made public. Furthermore, the people the Wilpons and Katzes encouraged to invest with Madoff were all close friends and family members. This hardly appears to be the action of people who knew they were putting their money into a fraud.

The case is far from over, and former New York Governor Mario Cuomo is attempting to mediate the matter and bring it to a quicker conclusion. Negotiations may continue for months or even years, but right now, the lack of a smoking gun means that the Mets owners have a stronger position moving forward. It may not be as good as clinching a pennant or going on a long winning streak, but it's definitely something to build on.